At the same time, Africa shares the problems of many emerging markets, such as social volatility, unreliable electric power and a weak infrastructure hampering the movement of feedstocks and products.
For the chemical industry and its investors, opportunities in Africa center around three factors: high growth, major oil and gas reserves, and demand in certain market sectors such as agriculture, consumer products, infrastructure development and construction.
Managing the risks of doing business in Africa
In general, Africa’s operating environment remains relatively risky compared to other regions. The continent remains one of the most conflict-ridden regions in the world, with the number of conflicts increasing in recent years, although of lesser intensity than in the past.
Income inequality — both high and growing higher — is a factor driving some of this conflict. Regulatory uncertainty, accompanied by corruption and red tape, is another risk for economic development, with some countries having little or no oversight and others imposing regulations that hamper growth.
Equally important is the current state of Africa’s infrastructure. With the exception of telecoms, infrastructure is still inadequate. Finally, the sheer complexity of African society is a constant challenge.
To help mitigate business risk, successful investors take advantage of local knowledge, experience and expertise. This includes engaging experts with the requisite local knowledge and setting up in-house research units to constantly seek and gather relevant market information. Businesses are also attracting and retaining top local talent by offering competitive salary packages and robust training programs. In addition, they are aggressively recruiting Africans overseas along with foreign expatriates with requisite experience in local markets. Many foreign investors are also reducing the use of equity and intercompany loans and increasingly using local debt sourced from the host country.
KPMG chemicals outlook
Africa has been a long-neglected continent within the dynamics of the global chemical industry. Significant challenges still remain – Africa consists of 54 countries with very different dynamics, such that developing a continental strategy is difficult.
However, these challenges are no different to those faced by global chemical companies when they first entered China or India a generation ago. With nearly one-fifth of the world’s population, Africa is too big to be ignored. To be successful, there are three key factors companies need to adopt:
- Take a country-by-country and segment-by-segment approach to understand the market opportunity;
- Take time to understand the risks (but don’t overplay them) and develop detailed risk mitigation strategies; and
- Don’t go it alone – develop a strong network of local partners and local advisors to help navigate the challenges.
More so than at any point in the past, Africa is very much open for business and offers opportunities which will only expand as the continent continues to develop. The chemical industry will necessarily be at the forefront of that – providing the products that enable development. The chemical companies who benefit will be the ones who are first to understand the opportunity.
“Every morning in Africa, a springbok wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest springbok or it will starve to death. It doesn’t matter whether you are a lion or a springbok. When the sun comes up, you better start running.”
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